Numerical Solution of Multi-Asset Option Pricing Problems Using an Improved RBF-DQ Method
Leila Khodayari and M. Ranjbar* Author for corresponding; e-mail address: leila.khodayari@azaruniv.edu; m_ranjbar@azaruniv.edu
Volume: Vol.44 No.4 (October 2017)
Research Article
DOI:
Received: 4 January 2015, Revised: -, Accepted: 3 Febuary 2016, Published: -
Citation: Khodayari L. and Ranjbar M., Numerical Solution of Multi-Asset Option Pricing Problems Using an Improved RBF-DQ Method, Chiang Mai Journal of Science, 2017; 44(4): 1735-1743.
Abstract
In this paper, a modification of the original global radial basis functions-based differential quadrature (RBF-DQ) method is set forth and analyzed. The improved RBF-DQ method is applicable to the numerical approximation of solutions of a wide range of partial differential equations (PDEs) with mixed derivative terms. However, it appears to be considerably faster than the original method. In support of this contention, the multi-dimensional Black-Scholes (BS) equation in the Geometric Brownian Motion (GBM) framework has been solved numerically by using the proposed method and compared with results obtained via the original RBF-DQ method. For accuracy achieved versus work expended, the improved method performs better.